The Suez Canal is the longest man-made waterway in the world, and one of the globe’s most strategic trading arteries. But it is facing a multitude of threats. The most notable is a drive to expand its main rival, the Panama Canal, that could divert maritime traffic away from Suez. But changing patterns of world trade, such as ambitious Russian efforts to create a land-based transportation network from Vladivostok on the northern Pacific coast to Western Europe, and a plethora of oil and gas pipelines from Central Asia and Russia, threaten to severely reduce traffic through the 163 kilometer Suez waterway that links the Red Sea and the Mediterranean Sea. When the canal was completed in November 1869 (leaving Egypt virtually bankrupt), it offered a shorter and cheaper route between the eastern and western hemispheres compared to the long and hazardous voyage around the Cape of Good Hope, Africa’s southern tip, and there was no shortage of customers among the world’s merchants and shippers. Now, nearly 140 years later, times have definitely changed and Egypt has plans to spend at least $5 billion over five years starting in 2010 to expand the Suez Canal to meet the myriad challenges. The centerpiece of this will be deepening the waterway by ten feet to 72 feet and widening it by 17 percent to an average 365 meters. Long way round. This undertaking, which will cost an estimated $1 billion a year between 2010 and 2015, will allow very large crude carriers (VLCCs) to transit the waterway without having to transfer half their cargoes into the 2.5 million barrel-a-day Sumed pipeline that runs along the canal’s eastern bank from the Ain Sukhna terminal south of Port Suez, the southern end of the canal, to the Sidi Krir terminal west of Alexandria on the Mediterranean coast where the oil is reloaded. At present these maritime behemoths, as large as 350,000 metric tons, fully laden are too big for the canal as they head northwards for European ports. Many of these huge tankers are sent the long way around the Cape, and the Suez Canal Authority (SCA), which has run the canal since Gamal Abdel Nasser nationalized it in July 1956 and triggered an invasion by Israel, Britain and France, wants them to switch to the canal route. “We want to get the biggest possible share of future world trade,” declared Admiral Ahmed Fadel, the former navy commander who heads the SCA. “We want to create more bypasses to handle future huge tankers,” he told the Bloomberg financial news agency. The canal is Egypt’s third most important revenue earner after tourism and remittances from expatriate workers, and posted revenues of $3.82 billion in 2006, up from $3.4 billion the year before. Earnings are expected to increase further in 2007 with the International Monetary Fund forecasting a 7.6 percent rise in global trade, largely driven by India and China, the world’s most populous nations and also the fastest expanding economies. China, in particular, is expanding its commercial ties with the Middle East and Africa, particularly in security energy supplies, and Cairo is currently negotiating a three-way agreement with China and Italy that would facilitate Chinese exports to Europe. This would bring more Chinese ships through the canal. Attractive proposition. The Egyptians have been driving since 2000 to attract Chinese companies to use Egypt as a springboard for exporting manufactured goods to Europe, the Middle East and sub-Saharan Africa. Rachid Mohammed Rachid, Egypt’s trade and industry minister, says there are plans to set up industrial zones for Chinese and Russian manufacturers on the Mediterranean coast that would become an export hub to Europe. This effort is now starting to pay off - a 1 million square meter industrial park for 60-80 Russian firms is now in the works - amid a general upswing in the Egyptian economy over the last three years. This has been aided by congestion in the Panama Canal that has pushed up revenue from the Suez Canal. Petrodollars from the Gulf have also found their way to Egypt’s real estate, banking, telecommunications and transportation sectors. Rachid noted recently that Cairo hopes to attract all of Chinese shipping traffic to Europe, instead of the 60 percent it has now. In return, the Chinese would expect lower transit fees. On April 1, the SCA hiked transit fees by an average of 3 percent, the second increase in a year. But with the Panama Canal being upgraded, the SCA also plans to offer transit fee discounts in hopes of diverting Asia-to-US trade from the Pacific to the Atlantic via the Suez Canal. At present, some 7.5 percent of the world’s trade passes through the Suez Canal, around 18,000 ships a year, compared to around 5 percent for Panama. The $7 billion Panama upgrade, which is scheduled to be completed by 2014, involves adding a “third lane” to the American-built waterway, which was opened in August 1914, and will allow it to accommodate all but a handful of the world’s largest vessels. That will likely quadruple transit fees to fund the expansion program, which could reduce the competitiveness of the canal, which is a key shipping route for booming Asian trade with the US east coast. Unlike the Suez Canal, the 80 kilometer Panama waterway has six sets of two side-by-side locks which raise and lower transiting ships between the Atlantic and the Pacific. Some shipping experts say that, in the final analysis, the Suez Canal could actually benefit from the Panamanian expansion, since it will likely be full within two-three years as US west coast ports are likely to be near capacity. Traffic from Asia will thus find they will have to use the Suez route. Sayed Zakaria, the director of the SCA’s transit department, says, “Suez will go East and west to maximize its share of world trade before the Panama Canal improves capacity … We’re ten years ahead of Panama, but we’re not sleeping … Saving money and time, or both - this what the canal is all about.” Trouble afoot. But other threats loom. Moscow has been aggressively promoting yet another transportation scheme designed to bypass the canal - an overland trade route involving rail, road and river infrastructure known as the North-South Corridor (NSC) that could transform global trading patterns. The corridor would link Asia to Europe, from Mumbai on India’s Arabian Sea coast to the Caspian Sea port of Olya in the Astrakhan region, recently linked to Russia’s rail system, via Bandar Abbas in Iran. Moscow reckons this could bring in billions of dollars in revenue - up to $10 billion a year in turnover. At present, almost all Russia-India trade is carried through the Mediterranean and Red Sea-Suez route. But Moscow planners estimate the NSC system, eventually embracing the energy-rich Central Asian republics, could handle some 15 million-20 million tons of freight annually. The NSC would total 6,245 kilometers, nearly 10,000 kilometers shorter than the maritime route through Suez. The theory is that shippers would be lured by lower transportation costs - as much as 30 percent per container - and faster delivery times, ten-12 days less than the traditional route via Suez. Over the last few years, Russia has doubled freight traffic in its part of the corridor. It will cost many millions of dollars to create such an ambitious alternative to the Suez route, but in September 2000, Russia, India and Iran signed an agreement to develop the corridor. Russian President Vladimir Putin ratified the trilateral accord in March 2002. Russia and Iran have discussed restoring an old rail link as part of the project. Freight from Southeast Asia would be hauled from the Indian Ocean through the Gulf to Iran where it would be loaded onto trucks and trains, shipped across the Caspian into Russia, and thence into Western Europe. The Russians have also sought to develop the fabled Trans-Siberian Railway, which runs from Vladivostok to Moscow, as a full-blown transcontinental system between Asia and Europe. The railroad, which covers almost 10,000 kilometers, is the longest continual rail line in the world. The scheme has been beset by problems, most notably the Russian railroad system’s lack of reliability. There are of course security concerns in such conflict zones as Chechnya and the Caucasus. The Middle East is hardly a stable environment, but then the Suez Canal stays in business (despite being closed for eight years after the 1967 Middle East war) because it makes economic sense and because there are no viable alternatives - yet. One such threat, though one still some years distant, comes from an unexpected source - global warming. The Arctic icecap is melting. Studies have shown that temperatures are rising faster in the polar caps than anywhere else on the planet. If that continues, there will be growing access to the fabled Northwest Passage that connects the Atlantic and Pacific oceans, in the coming decades - as much as 120 days a year, compared to the current 30. That could reduce the time by sea from London to Tokyo by some 5,000 kilometers compared to taking the Suez route - or, come to that, 8,000 kilometers compared to the Panama option.

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